This is static scoping. Statements within a function are scoped within that function.
Javascript has a quirky behavior, however, which is that without the var keyword, you've implied a global variable. That's what you're seeing in your test. Your "d" variable is available because it is an implied global, despite being written within the body of a function.
Also, to answer the second part of your question: A function exists in whatever scope it is declared, just like a variable.
Sidenote:
You probably don't want global variables, especially not implied ones. It's recommended that you always use the var keyword, to prevent confusion and to keep everything clean.
Sidenote:
The ECMA Standard isn't probably the most helpful place to find answers about Javascript, although it certainly isn't a bad resource. Remember that javascript in your browser is just an implementation of that standard, so the standards document will be giving you the rules that were (mostly) followed by the implementors when the javascript engine was being built. It can't offer specific information about the implementations you care about, namely the major browsers. There are a couple of books in particular which will give you very direct information about how the javascript implementations in the major browsers behave. To illustrate the difference, I'll include excerpts below from both the ECMAScript specification, and a book on Javascript. I think you'll agree that the book gives a more direct answer.
Here's from the ECMAScript Language Specification:
10.2 Entering An Execution Context
Every function and constructor call
enters a new execution context, even
if a function is calling itself
recursively. Every return exits an
execution context. A thrown exception,
if not caught, may also exit one or
more execution contexts.
When control
enters an execution context, the scope
chain is created and initialised,
variable instantiation is performed,
and the this value is determined.
The
initialisation of the scope chain,
variable instantiation, and the
determination of the this value depend
on the type of code being entered.
Here's from O'Reilly's Javascript: The Definitive Guide (5th Edition):
8.8.1 Lexical Scoping
Functions in JavaScript are lexically
rather than dynamically scoped. This
means that they run in the scope in
which they are defined, not the scope
from which they are executed. When a
function is defined, the current scope
chain is saved and becomes part of
the internal state of the function.
...
Highly recommended for covering these kinds of questions is Douglas Crockford's book:
JavaScript, The Good Parts http://oreilly.com/catalog/covers/9780596517748_cat.gif
Javascript, The Good Parts, also from O'Reilly.